Don't touch that dial

Seattle should take a closer look before jumping into the cable business.

IN RECENT EDITORIALS, both Seattle daily newspapers have compared cable giant TCI to Saddam Hussein. Seattle City Council members are staggering under an avalanche of e-mail and phone messages urging them to cancel TCI's service contract. Times television columnist Kay McFadden has been so enthusiastic about promoting the "Fire TCI" movement that cable executives must expect soon to see her leading a mob with torches and pitchforks.

Related Content

TCI's crime? Some Seattle subscribers may have to wait nine months before their 40-channel cable service is expanded to 70 channels.

"People take television very seriously," says TCI spokesman Steve Kipp. It's not like personal computing, he points out. If your home computer is running slow, crashes, or just won't perform its operations correctly, you turn it off and do something else. "Your TV picture goes out—usually it's during your favorite program—and you're on the phone complaining."

Kipp isn't exaggerating. TCI's two phone centers for customers in King, Pierce, and Snohomish counties log an incredible 300,000-500,000 calls per month, ranging from new service requests to customers seeking help in programming their VCRs. That, along with a loathing for the cable company that even Kipp attributes to a long history of lamentable customer service, has Seattle residents urging tough sanctions for TCI because of its failure to meet a three-year deadline for citywide service upgrades. Under the company's Seattle franchise contract, TCI is automatically assessed a $10,000 monthly fine until the work is completed, but city officials seem intent on further penalties, possibly including rebates to service-shorted customers.

TCI's reputation has deteriorated to the point where Seattle is also considering the establishment of a municipal cable system along the lines of Tacoma's Click!, a city-operated, high-speed fiber optic network providing cable service and Internet access to about 2,000 subscribers. Steve Klein, superintendent of Tacoma Power, told Seattle City Council members at a briefing last week that the electric utility had originally planned the network for remote metering and switch operation. But at only a small additional cost, he said, Tacoma was able to add cable television and music transmission, provide high-speed data transmission for area businesses, and lease space to Internet service providers and other users.

BUT SEATTLE'S CABLE WOES can't be eliminated by simply terminating TCI's contract. "A bunch of people have written and said just get rid of TCI and get someone else. Well, it's not that easy," notes council member Nick Licata. For starters, TCI owns its wires—a system worth an estimated $200 million—and a new operator would either have to buy them or rewire the entire city. An outside operator also would be required to finish the promised upgrades—and set up shop in a city known for harshly treating cable companies.

Furthermore, the realities of the cable business tend to prevent the benefits of competition—better service and lower rates—from automatically taking hold when a competitor is introduced into a monopolist's territory. A 1998 cable industry report by Washington, DC's Strategis Group generally concluded that direct block-by-block competition (also known as "overbuilding") isn't always smart business. (Limiting factors include the cost of expanding the wiring grid and the availability of a large customer base.) Multiple operators tend to split the customer base and avoid price wars by setting prices at similar levels. The presence in Seattle of a second cable operator, Summit Cablevision, for example, has done nothing to improve TCI's performance. Originally founded to serve Central Seattle, Summit has limited its expansion to nearby, densely populated neighborhoods, avoiding direct competition with TCI.

It also remains to be seen if the city of Seattle has deep enough pockets and sufficient appetite for financial risk to jump into the cable market. Pacific Bell and Southwestern Bell (hardly poverty-stricken entities) lasted only a short time in the cable business. Even Tacoma's Klein expressed doubt that a cable-only municipal system would pencil out in Seattle. (In this connection, it should be noted that Tacoma's fiber system, originally costed out at $55 million in March 1997, is now up to $100 million and counting.)

But the biggest stop sign for Seattle officials is the lack of a successful role model. Only a handful of small cities have so far experimented with municipal cable systems, and the results have been less than spectacular. Even the much-praised Tacoma experiment has provided only a few extra channels and minor savings for customers—with a several-year wait to see if the system actually breaks even. As admiring as council members seem toward Tacoma's risk-taking approach, it's far from proven that public utilities belong in the cable business.